Arguments for Demurrage-Based Post-Growth Currencies

“Our economy cannot function without growth because most money is not printed by governments, as people usually imagine, but is instead loaned into existence by central banks and commercial lenders, who can loan out ten dollars or more for every dollar they’re required to have in their vaults. In effect, then, a lender creates new money with every loan.

And the whole point of making loans is to earn interest for the lender.

But for the borrower, interest obliges her to pay back more than she borrowed. And to earn the money to pay back the principal plus accumulated interest, the borrower will need to create goods and services. Multiply that out across the whole economy, and it becomes an imperative for economic growth.

“Without growth, debt increases faster than income and wealth and the whole system crashes. Before that, you get polarization of wealth income and unemployment,” Eisenstein said, aptly describing today’s plutocratic rule by the top 1%.

So, since all national currencies, whether the dollar or the Euro or the Yuan, allow lenders to earn interest, the whole economy becomes addicted to economic growth. As long as we continue to let banks create our money through their loans, we’ll all have to keep creating more goods and services, thus despoiling the Earth and exploiting each other just to stay above water.

If we don’t, we’ll all wind up like Greece.

Financial elites have done well indoctrinating the ordinary citizen about the dangers of inflation, with stories of the horrors of double-digit price increases under Ford and Carter or hyperinflation in 1920s Germany or 2000s Zimbabwe.

Today, it’s hard to imagine that many ordinary Americans in the late nineteenth century, especially farmers, actually clamored for more inflation as a way to reduce the burden of their debts. That’s why their champion, populist William Jennings Bryan, famously denounced inflation-resistant hard currency as a “Cross of Gold.”

Like a modern-day Bryan, Eisenstein wants money to decline in value. But for him, it’s as much about saving the Earth from predatory economic growth as it is about saving the farm from the bank.

“The problem with money is this growth imperative that converts everything into itself. And we’re reaching the peak of that,” Eisenstein explained. “It’s not about ‘sustainable growth,’ which is an oxymoron. And it’s not about finding some way to keep the growth system working. It’s about reclaiming life from money. It doesn’t mean eliminating all money but instead taking back certain realms, the natural and social commons, away from money.”

And to do that, Eisenstein proposes a new-and-improved kind of money: negative-interest currency. Essentially, it would be money that spoils.

With today’s money, you can park it in a CD and just sit back and watch the interest compound. That encourages rich people to hoard money. But with negative-interest currency, any saved money would depreciate at a fixed rate, perhaps 2% annually, unless it were lent out (at no interest) to start new businesses or pay for something else useful. Built-in depreciation would discourage hoarding by creating a hot-potato effect, where people want to get money out of their hands as soon as possible before it starts to lose value.

As Eisenstein explained to me:

– Negative interest is a different kind of money system. For example, it could involve a liquidity tax or charge on reserves in the Fed or central bank system. If banks hold onto their money as they do today, their money would slowly shrink in value. So would your checking account. So it gives you an incentive to lend your money, even at zero interest. Thus, you can have money circulate without an imperative for growth…It amounts to a slow-motion debt forgiveness, kind of like inflation in that it works to the benefit of debtors and against the interest of creditors. For those of us living paycheck-to-paycheck, it would have little effect except to help us to pay back debts more easily.

But if you want money that goes down in value, doesn’t inflation already do that?

With today’s real inflation rate closer to 8% rather than the official 2% or 3% claimed by the Consumer Price Index on the one hand, and loan interest rates near zero on the other, it might seem like the US dollar has already become a negative-interest currency.

The difference between inflation and demurrage is complex, but the best simple explanation I could find was from the fine folks at Wikipedia: “Both inflation and demurrage reduce the purchasing power of money held over time, but demurrage does so through fixed, regular fees while inflation does so through expansion of the money supply through the actions of a central monetary authority distributing the new issue of currency.”

In other words, the US dollar inflates unpredictably under the influence of the Fed and the big banks acting in their own interests, while a local currency with demurrage is under local control and managed predictably to boost the local economy.”

Most of this content, while good-hearted criticism against the confused situation of America, is wrong. #Occupy and Eisenstein need to make a distinction between money lent for expansion of business vs. money for “the People”. The latter is tied to the Judeo-Christian fulfillment story.

On the former you have the pyramid and “Seclorum dollars”, on the latter you have E Pluribus Unum and “People dollars”. These are in tension and hence the confusion and bi-polarism of the country.

Seclorum Banks lend out money to create more capital. How does this work? They pick who gets lending based upon their valuation for potential contributions to the economy. As those investments “mature”, new wealth is created. These loans have nothing to do about gaining “interest” for the lender as Charles claims. In fact, interest may not even be an appropriate term to use for fees collected for servicing the loan and mitigating risk.

Rightly so, he states that the current situation has created a financial problem. The problem is probably not properly understood by anyone because it is related to Biblical narratives. The issue is that appreciate of money occurred without real contribution to the economy. This appreciation happened because of simple, predictable affects of supply and demand — more people (due to population growth) chasing after less land and property available — not, notably, by improving anything. That means no real value was created by the increase in wealth by property holders.

The solution to the problem is in the Pangaia Project. You don’t need to make a “negative interest” currency. Pangaia is explicitly set up to *redeem* the wealth of America (and the G– economy) by converting it to (and in) a new Creative Economy. While tempting to destroy the old iron structures of capitalism, Pangaia will instead create an alternative, parallel economy — in harmony with the old — while the Seclorum economy can accomplish its aims: a space-faring enterprise to continue the journey of their species (homo sapiens). Others will help create the beauty of the Earth and in-between a civilization will be made worth living in.

Let’s first define demurrage as a periodic but small percentage fee, to be charged on all “liquid” money such as cash and on-demand bank deposits.

That fee, which in the case of bank deposits is easy to collect, in the case of cash a bit more difficult, has to go somewhere. It should most probably go to the government, and it would do the same as any tax the government levies – it increases the money government has at disposition to spend.

Demurrage is a charge for holding money as opposed to spending it. It is predicated on the false notions that:

1) The existence of account entries depend uniquely on transfers of units from other accounts rather than the creation and transfer of goods and services.

2) That money generates commerce rather than the other way round.

3) That choosing not acquire goods and services is somehow harmful.

Demurrage lacks the exact rational foundation that interest lacks. It skews the value measure function by adding the artificial criteria of having to buy other than the value of goods and services. It also creates an unnecessary class of deciders of what rate to apply that can reap havoc on the economy if they make mistakes.

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WRITTEN BY

Michel Bauwens

Michel Bauwens is the founder and president of the P2P Foundation and works in collaboration with a global group of researchers in the exploration of peer production, governance, and property. Bauwens travels extensively giving workshops and lectures on P2P and the Commons as emergent paradigms and the opportunities they present to move towards a post-capitalist world.
In the first semester of 2014, Bauwens was research director of the floksociety.org which produced the first integrated Commons Transition Plan for the government of Ecuador, in order to create policies for a 'social knowledge economy'.
In January 2015 CommonsTransition.org was launched. Commons Transition builds on the work of the FLOK Society and features newly revised and updated, non-region specific versions of these policy documents. Commons Transition aims toward a society of the Commons that would enable a more egalitarian, just, and environmentally stable world. He is a founding member of the Commons Strategies Group, with Silke Helfrich and David Bollier, who have organised major global conferences on the commons and economics.